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American Economic Journal: Applied Economics: Vol. 2 No. 3 (July 2010)

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US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms

Article Citation

Hanna, Rema. 2010. "US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms." American Economic Journal: Applied Economics, 2(3): 158-89.

DOI: 10.1257/app.2.3.158

Abstract

This paper measures the response of US-based multinationals to the Clean Air Act Amendments (CAAA). Using a panel of firm-level data over the period 1966-1999, I estimate the effect of regulation on a multinational's foreign production decisions. The CAAA induced substantial variation in the degree of regulation faced by firms, allowing for the estimation of econometric models that control for firm-specific characteristics and industrial trends. I find that the CAAA caused regulated multinational firms to increase their foreign assets by 5.3 percent and their foreign output by 9 percent. Heavily regulated firms did not disproportionately increase foreign investment in developing countries. (JEL F23, K32, L51, Q52, Q53, Q58)

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Authors

Hanna, Rema (Harvard U)

JEL Classifications

F23: Multinational Firms; International Business
K32: Environmental, Health, and Safety Law
L51: Economics of Regulation
Q52: Pollution Control Adoption Costs; Distributional Effects; Employment Effects
Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q58: Environmental Economics: Government Policy

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